Earlier this year, Ardent Partners analysts tracked a bevy of fast-moving developments concerning Section 1502 (the Conflict Minerals Provision) of the 2010 Wall Street Reform and Consumer Protection Act – also known as the Dodd-Frank Act (click here to read our reporting and analysis). There was much uncertainty concerning the future of the Provision and the Act, especially after the election of Donald Trump as President of the United States. He had decried the bureaucratic mess of regulations and how they were hurting businesses, and vowed to simplify or cut regulations to ease the burden, particularly on small businesses. In the beginning of 2017 and his presidency, he took a number of preliminary steps to roll back or overturn several regulations, including Section 1502 of Dodd-Frank.
Since then, there have been a couple of critical developments in the story that, at least from a legal or regulatory standpoint, have disrupted or could disrupt the status quo for Chief Procurement Officers (CPOs) and their teams.
- The U.S. District Court for the District of Columbia has upheld prior rulings on the legality of key requirements of Section 1502, namely that covered companies must conduct due diligence of their supply chain for the presence of tin, tungsten, tantalum, or gold (3TG minerals) and file a report with the U.S. Securities and Exchange Commission (SEC). It has also upheld another ruling on the public reporting requirement of Section 1502 — that it is unconstitutional because it mandated that covered organizations declare whether their products have or “have not been found to be DRC conflict free.” Such declarations are “forced speech” and thus violate the First Amendment. The District Court then “remanded” to the SEC on the issue and left it to the SEC to determine whether the public reporting requirement was the product of the SEC or even necessary.
- Shortly after the ruling, Acting SEC Chairman, Mike Piwowar, issued updated guidance on the execution and enforcement of Section 1502 of Dodd-Frank. Because the SEC now had to determine how to proceed with 1502 vis-a-vis public reporting (presumably either amend it or drop it altogether), it had created confusion for organizations and regulators on what to do next. While Piwowar’s team sorts it out, he declared that the SEC would not enforce the due diligence, auditing, and SEC filing mandates. Doing so would place too costly a burden on covered organizations. “Until these issues are resolved,” he added, “it is difficult to conceive of a circumstance that would counsel in favor of enforcing.”
- Last month, the United States House of Representatives (“the House”) voted 233-186 in favor of H.R.10, also known as the Financial CHOICE Act of 2017. If passed in the U.S. Senate (and by many accounts, it will not, at least not in its current form), the Act would effectively overturn much of Dodd-Frank and Section 1502. Page 482, in particular, would completely overturn the Conflict Minerals Rule, rendering years of lawsuits and court decisions moot.
Although the weakening of Dodd-Frank and the possible repeal of Section 1502 in particular have been met with some cheers from the business community, not everyone is cheering their demise. Many Western business leaders and folks on the ground have claimed that the Rule has been ineffectual, doing little or nothing to stem the flow of cash to armed groups in the DRC. Others have said that the Rule has led to an exodus of businesses had sourced 3TG minerals from the central African nation and the eight surrounding countries. Their departure has hurt the local economies, which are heavily reliant on extractive industries, like mining. Moreover, if companies withdraw from the DRC and surround countries, they cannot effectively influence more ethical labor practices there. As a result, neutering or overturning Section 1502 is a welcomed possibility for many.
Still, there are many miners, community members, and activists who believe that the Conflict Minerals Rule has been working as intended; and that the SEC’s decision not to enforce the Rule and Congressional efforts to overturn it as halting real progress. Although many companies left the DRC and the surrounding countries at first, many have returned and conditions on the ground have improved. There is greater visibility and awareness now of where the money goes, who it benefits, and if it funds militias. Activists and miners claim that it has reduced violence in their communities and that ditching Dodd-Frank would be a return to the “bad old days” when armed groups profited from the illicit mining and trading of 3TG minerals, which has fueled a decades-long civil war.